1998 (5) TMI 38 - AT - Income Tax

Summary

Issues:
1. Whether surplus amount of a charitable trust, not utilized for charitable purposes, should be added to the income of the trust.
2. Whether a charitable trust charging a nominal amount for services can be considered as operating for profit.
3. Whether a charitable trust investing surplus amount in facilities for better services qualifies for tax exemption under section 10(22A) of the IT Act.

Analysis:
Issue 1: The primary issue in this case was whether the surplus amount of Rs. 96,050, not utilized for charitable purposes by the trust, should be added to the income of the trust. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) had both confirmed the addition. The trust, being aggrieved, appealed to the Tribunal.

Issue 2: The Authorized Representative argued that the trust, registered under section 12A of the IT Act, was providing services for treatment to needy individuals by charging a nominal amount. He contended that the surplus amount was invested in building, equipment, and furniture to enhance services, and the trust operated without a profit motive. Case laws from various High Courts were cited to support this argument.

Issue 3: The Departmental Representative, however, argued that the trust's surplus amount constituted income and was not utilized for charitable purposes. Referring to a previous assessment year, it was mentioned that the treatment in the nursing home was not free, indicating a profit motive. The CIT(A) upheld this view, stating that the trust was not entitled to benefit under section 10(22A) of the Act.

The Tribunal, after considering the submissions, noted that the trust was registered and provided medical services by charging a nominal amount. The surplus amount was invested in facilities to improve patient services. Referring to legal precedents, the Tribunal highlighted that providing services for a fee did not negate the charitable nature of the trust. It was observed that no personal benefit was derived by any trustee from the surplus amount, which was utilized for the trust's objectives. Ultimately, the Tribunal set aside the CIT(A)'s order and deleted the addition of Rs. 96,050, allowing the appeal in favor of the trust.